Turn On The Lights, Watch The Roaches Scatter, Part 42

The battle for MERS is underway, and if the banks win, they will walk away from hundreds of billions of dollars worth of fraud scot-free.

The companies have opened wide their wallets for lobbying and are flying top executives to Washington for one-on-one meetings with lawmakers. They are holding briefings for key staffers, including an event last week that drew more than 60 aides. And they are blanketing Congress with white papers, memos and other documents that lay out their arguments.

The focal point of their efforts is Mortgage Electronic Registration Systems, or MERS, the controversial, privately run electronic database that is used by practically every lending institution and investment company to track the transfer of the ownership of mortgages as they are packaged into securities and traded at lightning speed around the globe.

But MERS does more than just track the trading of loans. In the vast majority of mortgage documents at local courts and offices across the country, it is listed as the holder of the loans. That allows the financial industry to trade mortgages as much as it wishes without spending the time and money to refile the paperwork.

The industry is seeking legislation that would effectively affirm MERS's legality and block any bill that would call into question what MERS does. MERS has spent more than $1 million in lobbying since fall 2008, when lower courts around the country began to rule against it. But MERS had kept its name under the radar until the recent uproar over foreclosures revealed broad problems in mortgage paperwork.

If successful on Capitol Hill, the industry could in one quick swoop make all lawsuits related to MERS across the country moot and remove one of the key uncertainties dangling over the mortgage industry. On the flip side, lawmakers could create a new federal registry, effectively killing MERS's business and forcing the industry to submit to greater oversight. 

Why are the banks going to all this trouble to lobby Congress to adopt MERS as the new national standard?  Two reasons:  one, to make all MERS fraudulent paperwork legally official, and two, to get the banks off the hook for hundreds of billions.

In recent years, MERS has become the target of numerous legal challenges from homeowners in foreclosure who allege that mortgage transfers made through the system are invalid because they bypass local recording laws. MERS, the lawsuits contend, does not have standing to foreclose because it is only a database and not the actual holder of the mortgage.

The liabilities could be astronomical for MERS. One lawsuit in California alone is seeking recording fees that could cost the company from $60 billion to $120 billion. But the consequences for the financial industry are even greater, as challenges to the validity of transfers done by MERS call into question the entire process of how loans were securitized and could render the 66 million mortgages in its system foreclosure-proof. 

In the wake of such controversies, lobbyists for Reston-based Merscorp, which runs MERS, have been floating the idea of legislation that would establish the firm as the national registry to track the transfer of mortgages. 

Are we finally understanding what's at stake here?   The foreclosure liability vanishes for the banks.  The paperwork MERS has becomes 100% legal.  And the banks can happily keep foreclosing on any home they want to because there would be no way to challenge MERS paperwork, even though in millions of cases it's fraudulent and in some cases completely fabricated.

In short, the banks would be rewarded for stealing millions of mortgage titles, worth hundreds of billions, if not trillions of dollars.  And they could then play all the mortgage securitization games they want to.  Unlimited credit line at the Big Casino, courtesy Uncle Sam.

Your mortgage and your home becomes subject to whatever MERS says it is.  And their word would be law.

They would win completely.  And right now they are buying every member of Congress they can find in order to get this law passed.  The banks are now bringing the full power of Wall Street's lobbying grand masters to bear upon lawmakers, and they will spend whatever it takes to make this the law of the land.

And yes, that means the President will sign the bill, or there will be a veto override.  You can bet every single Republican will be on board in the House.  You can bet they will find 60 Senators too.  That leaves the President.

And even then, the banks will buy as many members of Congress as they need to in order to override Obama's veto, or they will simply threaten to cut off anyone who doesn't vote for it and see them annihilated in 2012.  This is a potentual world-breaker for the banks and they know it.  Their survival is at stake.  They will do what it takes to survive.

And that will mean taking over every mortgage in America and holding it hostage.  This is their endgame.  And I just don't see how the American people can win.